Banks play a critical role in the financial system, providing everything from commercial loans to wealth management and payment processing services. Market leaders have certainly capitalized on rising interest rates and strong loan demand to boost profitability, helping fuel a 13.3% gain for the banking industry over the past six months. This performance has closely followed the S&P 500.
Regardless of these results, investors must exercise caution as many banks are sensitive to interest rate fluctuations and economic cycles. On that note, here is one bank stock poised to generate sustainable market-beating returns and two we’re swiping left on.
Two Bank Stocks to Sell:
Eastern Bank (EBC)
Market Cap: $4.74 billion
Founded in 1818 as one of America's oldest mutual banks before converting to a public company in 2020, Eastern Bankshares (NASDAQ: EBC) operates as a bank holding company providing commercial and retail banking services primarily in Massachusetts, New Hampshire, and Rhode Island.
Why Are We Hesitant About EBC?
- Inferior net interest margin of 3.1% means it must compensate for lower profitability through increased loan originations
- Forecasted tangible book value per share decline of 3.3% for the upcoming 12 months implies profitability will deteriorate significantly
- ROE of 1.9% reflects management’s challenges in identifying attractive investment opportunities
At $19.87 per share, Eastern Bank trades at 1.1x forward P/B. Read our free research report to see why you should think twice about including EBC in your portfolio.
Bank of Hawaii (BOH)
Market Cap: $2.77 billion
Founded in 1897 as a financial anchor for the newly annexed Hawaiian territory, Bank of Hawaii (NYSE: BOH) is a financial institution providing banking, investment, and insurance services primarily to customers in Hawaii, Guam, and other Pacific Islands.
Why Do We Avoid BOH?
- Net interest income stagnated over the last five years and signal the need for new growth strategies
- Net interest margin of 2.3% is well below other banks, signaling its loans aren’t very profitable
- Earnings per share were flat over the last five years and fell short of the peer group average
Bank of Hawaii’s stock price of $67.72 implies a valuation ratio of 1.8x forward P/B. To fully understand why you should be careful with BOH, check out our full research report (it’s free for active Edge members).
One Bank Stock to Watch:
Stock Yards Bank (SYBT)
Market Cap: $2.05 billion
Founded in 1904 in Louisville and named after the city's historic livestock market district, Stock Yards Bancorp (NASDAQ: SYBT) operates a regional bank providing commercial banking, wealth management, and trust services across Kentucky, Indiana, and Ohio.
Why Should SYBT Be on Your Watchlist?
- Market share has increased this cycle as its 16.7% annual revenue growth over the last five years was exceptional
- Market share has increased this cycle as its 17.1% annual net interest income growth over the last five years was exceptional
- Impressive 18.5% annual tangible book value per share growth over the last two years indicates it’s building equity value this cycle
Stock Yards Bank is trading at $69.39 per share, or 1.9x forward P/B. Is now the time to initiate a position? Find out in our full research report, it’s free for active Edge members.
Stocks We Like Even More
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